A pure monopoly is characterized by a single seller of a unique product without close substitutes, the ability to set any price, and barriers to entry that prevent competition. While pure monopolies are rare, monopolies can exist when a firm is the only producer of a product and uses barriers like patents, large size, or unfair tactics to prevent competition. A monopoly has power over price as the sole provider of a product and sets price at the level that maximizes profits by balancing marginal revenue and marginal costs.

1. [email_address] MONOPOLY

2. PURE MONOPOLY Pure monopoly is a type of market characterized by; a single seller or producer, a unique product, with no close substitute, the ability of the seller to ask any price it wishes, entry to the industry completely blocked by legal, technological or economic barriers, and

3. no need for non-price actions, except public relations or goodwill advertising. Examples of pure monopolies are not common because monopolies are either usually regulated or prohibited altogether. Cases where a company has substantial amount of monopoly power, but cannot be considered a pure monopoly, can easily be found.

4. MONOPOLY UNIQUE PRODUCT A monopoly exists when a firm is the only producer of a given product. That product is therefore unique to that firm. The product is unique in the sense that no close substitutes are presently easily available to consumers. - Such situation is rarely observed because products providing a similar service can usually be found in other industries orregions of the world.

5. MONOPOLY POWER OVER PRICE A monopoly has extensive power over the price it may want to charge its customers. The monopolist is sometimes referred to as a price maker. A monopolist does not charge the highest possible price. Instead it charges the price for which its profits are the largest. A monopolist does not set a price independently of the volume produced: quite the contrary, price setting is implemented by restricting output.

6. MONOPOLY ENTRY BARRIERS Monopoly exists when entry barriers are present; these may be; - legal, from the ownership of a patent or a copyright, - legal, from its appointment as public utility for natural monopolies, - technological, from a secret method of production, - due to large size, age, or good reputation,

7. stemming from access to a key resource (such as ore), or; resulting from unfair tactics or unfair competition.

8. UNFAIR COMPETITION Various strategies used by firms to eliminate competitors by forcing them into bankruptcy or preventing new firms from entering the industry, are referred to as unfair competition. They may include; drastic under pricing of products, or cornering of a resource market. Most of these tactics have been declared illegal in antitrust legislation.

9. MONOPOLY NON-PRICE ACTION Since a monopolist is the only firm in the industry, it appears that there is no need for non-price action, such as advertising. However, advertising and other non-price action are used as a form of public relations and for the purpose of avoiding customer antagonism.

10. MONOPOLY DEMAND The demand of a monopoly is downward sloping because the monopoly is the only firm in the market, and demand for most products is price sensitive.

12. MONOPOLY MARGINAL REVENUE Marginal revenue is the additional revenue received for the last unit sold. - Since the monopolist can sell one more unit only by lowering the price on all the units sold, the marginal or additional revenue is not constant but decreasing. - The marginal revenue is less than price at any quantity. If the demand curve is a straight line, the slope of marginal revenue is twice the slope of the demand curve.

13. MONOPOLY DEMAND ELASTICITY The upper portion of the demand curve of a monopoly is elastic, and marginal revenue is positive for this region of output. The lower portion of demand is inelastic, and marginal revenue is negative in that region. It follows that a monopolist would never want to be in the inelastic portion of its demand since it can increase revenues by raising price.

14. MONOPOLY PROFIT A monopoly finds its maximum profit by producing at a level of output where marginal revenue equals marginal cost. (i.e. the intersection of marginal revenue and marginal cost curves). If it produces one less unit a profit is foregone (on the last unit it failed to sell), and if it produces one more unit a decrease in profit is incurred (as the marginal cost exceeds the marginal revenue for that last unit).

15. MONOPOLY OPTIMUM QUANTITY The profit of a monopoly is determined by first finding the optimum quantity with the marginal revenue equal to marginal cost rule. After that, the unit price on the demand curve and the unit cost on the average total cost curve are found based on the optimum quantity established first.

16. Monopoly Profit Graph

17. The monopoly profit is the difference between total revenue and total cost. Total revenue is represented as a rectangle with price (on the demand curve) as its height, and quantity (determined by MR=MC) as it width. Total cost is a rectangle with average unit cost (on average total cost) as its height, and quantity as its width. The area by which total revenue exceeds total cost is the profit area.

18. MONOPOLY LOSS A monopoly seeks to maximize profits, and is capable of achieving such a goal by controlling price and quantity. However, should customer demand decrease significantly, the monopolist will be content with minimizing loss (in the shortrun) and may even be forced to close down.

19. Monopoly Loss Graph

20. MONOPOLY ECONOMIC EFFECT A monopoly form of market is highly undesirable for our society because of the sizable loss of productive and allocative efficiency: the price paid is higher than in perfect competition and the quantity is smaller. The monopoly underutilizes the resources for the production of a good wanted by society. The price charged is much higher than the cost of additional resources used. However, economies of scale and technological progress are possible.

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